n i a o - derry and strabanemeetings.derrycityandstrabanedistrict.com/documents/s14690/2 appendix...

N I A O

Northern Ireland Audit Office Our purpose... Promoting better use of public money, through independent professional scrutiny, underpinned by our commitment to: • Integrity • Equality • Openness • Innovation

To make a difference for the people of Northern Ireland. The Local Government (Northern Ireland) Order 2005 provides that the Department for Communities (formerly Department of the Environment) may, with the consent of the Comptroller and Auditor General, designate persons who are members of the Northern Ireland Audit Office as Local Government Auditors. Louise Mason, Assistant Auditor General, is the designated Local Government Auditor for all local government bodies in Northern Ireland. For further information please contact: Colette Kane Director Northern Ireland Audit Office 106 University Street Belfast BT7 1EU Tel: 028 9025 1064 Email: [email protected]

DERRY CITY AND STRABANE DISTRICT COUNCIL AUDIT OF 2015-2016 FINANCIAL STATEMENTS REPORT TO THOSE CHARGED WITH GOVERNANCE Contents

Executive Summary 1

Section 1 - Audit Risks 3

Section 2 - Audit Findings 4

Section 3 - Identified Misstatements 9

Section 4 - Other Matters of Governance Interest

10

Annex A – Letter of Representation 13

Annex B –Audit Report 17

Annex C – Implementation of Prior Year Recommendations

19

Executive Summary

1

Introduction 1. This report summarises the key matters arising from our audit of the 2015-16 financial statements for the

benefit of those charged with governance1. This is the first audit of the 11 new Councils with their full operational functions from 1 April 2015. The 11 Councils were established under Local Government (Boundaries) Act (Northern Ireland) 2008. The provisions contained in the Local Government Act (Northern Ireland) 2014 came fully into effect in 2015-16. From 1 April 2015 the Councils have new powers and duties including planning, community planning, off street parking, general power of competence and performance improvement. The Act in Part 12 on performance improvement requires improvement audits and assessments which we report to those charged with governance separately per the timetable prescribed in the legislation. In addition regulations contained in the Local Government (Accounts and Audit) Regulations (Northern Ireland) 2015 require a shorter timeframe for the audit of the financial statements.

2. We would like to thank the Chief Financial Officer and Lead Finance Officer and all their staff for their co-operation during the audit process.

3. The examination of the 2015-16 financial statements was undertaken in accordance with auditing standards issued by the Auditing Practice Board (APB), taking into account the UK Auditing Practice Board’s Practice Note 10 (Revised); Audit of Financial statement in Public Sector Bodies in the United Kingdom and the Code of Audit Practice issued by the Local Government Auditor. Our approach to the audit was planned and executed in accordance with the Audit Strategy presented to the Audit Committee in March 2016.

4. This report has been prepared for the sole use of Derry City and Strabane District Council. Our prior consent should be sought before any distribution (including web publication) either in full or in part is made. The Northern Ireland Audit Office (NIAO) does not accept responsibility to any third party for losses arising from reliance being place on this report.

5. In accordance with regulation 8 of the Local Government (Accounts and Audit) Regulations (Northern Ireland)

2015, we can confirm that the Council has published the statement of accounts together with the audit report on its website.

Actions for those charged with governance 6. Those charged with governance are invited to review the findings in this report, including the letter of

representation and audit report included in Annex A and Annex B respectively.

Status of audit 7. Our audit for 2015-16 is complete. The Local Government Auditor certified the accounts on 23rd September

2016.

Overall conclusion and opinion 8. The Local Government Auditor provided her audit opinion in the format set out in Annex B –Audit Report. The

audit report includes an opinion as to the truth and fairness of the financial statements and that certain information given in the Narrative Report is consistent with the financial statements. The audit report also includes an opinion on whether the part of the Remuneration Report to be audited has been properly prepared in accordance with the Department for Communities directions made under the Local Government (Accounts and Audit) Regulations (Northern Ireland) 2015.

9. The Local Government Auditor issued an unqualified audit opinion, without modification.

1 In accordance with ISA 260, those charged with governance are those individuals accountable for ensuring that the Council achieves its objectives, with regard to reliability of financial reporting, effectiveness and efficiency of operations, compliance with applicable laws, and reporting to interested parties.

Executive Summary

2

Audit judgements 10. In reaching our opinion we have made the following key audit judgement:

• We considered the going concern issue raised by the auditor of City of Derry Operations Ltd (CODA Ltd) by way of an emphasis of matter paragraph in the auditors’ certificate and the impact this might have for the Group accounts. We were satisfied with the assurances received from Derry City and Strabane District Council that the Council would continue funding the airport for the foreseeable future. We agreed that the group audit certificate did not require any modification in respect of this issue.

Audit findings 11. In Section 2 we outline the quality, effectiveness and transparency of Derry City and Strabane District Council’s

financial reporting and its accounting policy selection and our audit findings including any issues identified relating to the internal control environment.

12. No issues were identified on the quality, effectiveness and transparency of financial reporting and accounting.

13. The accounting policies were considered appropriate.

14. There were no significant issues identified regarding proper arrangements. 15. We identified no significant internal control weaknesses2. We do acknowledge the significant investigation that

the Council completed during 2015-16 into their procurement processes and note, at this point in time the recommendations made have either been fully or partially implemented.

16. The Annual Governance Statement has been reviewed for completeness and adequacy of disclosures and

appears satisfactory.

17. Further issues of interest are set out in the Other Matters of Governance Interest section.

Identified misstatements 18. In the course of the audit misstatements were identified which have been adjusted in the financial statements,

as detailed in Identified Misstatements in Section 3. The net effect of these adjustments on the Comprehensive Income and Expenditure Statement (CIES) and Balance Sheet (BS) was £NIL.

19. Section 3 also details uncorrected misstatements. The net effect on the Comprehensive Income and Expenditure and balance sheet was £25,000. Management have not corrected these misstatements as they do not consider them material in the context of the financial misstatements as a whole. We are content with this.

2 In accordance with ISA 265, it is the auditor’s responsibility to communicate appropriately to those charged with governance and management, deficiencies in internal control identified in an audit of financial statements that, in the auditor’s professional judgement, are of sufficient importance to merit their respective attentions.

Executive Summary

3

Section 1 Audit Risks

4

Significant risks

1.1. In our Audit Strategy issued in March 2016, our assessment of the Derry City and Strabane District Council’s operations and control environment identified one significant risk. A significant risk is an identified and assessed risk of material misstatement that, in the auditor’s judgement, requires special audit consideration.

1.2 No new risks were identified since the Audit Strategy was issued.

1.3 The table below describes how we addressed these matters through our audit process. Significant risks of material misstatement Risk 1: Local Government Reform Council has undergone organisational change during the year which impacts upon its financial results including opening balances and transferred functions. Audit Response We will consider how council has gained assurance over these changes and we will test accordingly. We will also further consider any changes which may impact upon the financial accounts and the local government audit opinion. Outcome The Council appears to have satisfactorily managed the local government reform process. We note work is on-going within council re other aspects of the amalgamation of the two legacy councils e.g. Attendance and Disciplinary policies.

Section 2 Audit Findings

5

Financial Reporting and Accounting Policies 2.1 The Financial Statements are required to comply with the Code of Practice on Local Authority Accounting in

the United Kingdom and in accordance with the Accounts Direction issued by the Department for Communities (formerly Department of the Environment).

2.2 In this section we draw to your attention our review of qualitative aspects of the accounting practices and

financial reporting. This includes any significant changes or issues in respect of the accounting policies; estimates; judgements and the adequacy of disclosures affected by unusual or non-recurring transactions recognised during the period. We also review the overall balance and clarity of information contained in the Narrative Report.

2.3 A number of presentational adjustments were required to the financial statements submitted for audit.

The Department stated in the Accounts Direction 2015-16 Circular:

“As the New Councils are created under a transfer by absorption of the functions of predecessor councils, functions between New Councils as a result of boundary changes and transfers of functions from Central Government, the Code of Practice on Local Authority Accounting states that the notes to the accounts of the New Council shall include an opening Balance Sheet which should be clearly identified as the opening balance on the creation of the New Council, not the previous year’s Balance Sheet. The Financial Statements for 2015/16 have limited comparative figures as the Code states that for New Councils created under a transfer by absorption at the beginning of the financial year, no corresponding amounts for the previous year will be required in the financial year. As such only Shadow Council balances are required for 2014/15 comparative figures. For the Comprehensive Income and Expenditure Statement, these balances will be disclosed under DRM and Corporate Management.” We have audited the figures in the opening balance sheet and are content that they are presented appropriately and that all transferred balances are in line with the new boundary, agree to central government records and have been agreed by all parties.

2.4 During the audit:

• The accounting policies were considered appropriate to the particular circumstances of the Council, judged against the objectives of relevance, reliability, comparability and understandability. We do note that the accounting policy for infrastructure assets indicates that these are now valued at depreciated replacement cost. Given a large number of these assets have a significant historic revaluation up-lift, for example the airport runways, we suggest that you liaise with LPS as to the correctness of the carrying value of these assets.

• Based on our sample testing, other than very minor cut off errors, all transactions were correctly

recorded in the correct period.

• No issues arose from the review of the appropriateness of accounting estimates and judgements in relation to provisions, including the consistency of assumptions and degree of prudence reflected in the recorded amounts.

• There are no material risks which have a potential effect on the financial statements which have not

been disclosed in the financial statements.

• Other than this year’s low Minimum Revenue Provision charge as explained in note 12 of the accounts, the financial statements are not affected by any unusual transactions including non-recurring profits and losses recognised during the period.

• There are no apparent misstatements in the other information in the document containing the audited

financial statements or material inconsistencies between it and the audited financial statements.


6

• There were no significant difficulties encountered during the audit.

Review of information in the Narrative Report 2.5 We review information in the Narrative Report only to the extent that we confirm it is consistent with the

financial statements and our understanding of the business. Except as noted in the audit opinion, the Narrative Report is not subject to our audit opinion.

2.6 The Narrative Report was considered to be consistent with our understanding of the business, and was in

line with the other information provided in the financial statements.

Internal Control 2.9 No material weaknesses in the design and implementation of internal control have come to our attention

during the audit. Individual findings and recommendations are set out in “Observations and Recommendations” below.

2.10 We have reviewed the Governance Statement and in our opinion, it fairly reflects our understanding of the

state of internal control systems within the entity during the year and the changes made to the Governance Statement during the course of the audit.

Remuneration Report 2.11 We have reviewed the Remuneration Report and in our opinion it has been properly prepared in accordance

with Department for Communities (formerly Department of Environment) directions issued under the Local Government (Accounts and Audit) Regulations (Northern Ireland) 2015.

Observations & Recommendations 2.12 This section outlines the findings arising from our audit, as well as management's response and target date

for implementation to these recommendations. 2.13 We have included the significant, important and best practice findings arising from our audit which are

defined as:

• Priority 1 – significant issues for the attention of senior management which may have the potential to result in material weakness in internal control.

• Priority 2 – important issues to be addressed by management in their areas of responsibility. • Priority 3 – issues of a more minor nature which represent best practice.

Other issues of a more minor nature have been reported to the Lead Finance Officer.

2.14 As outlined in our Audit Strategy our procedures included a review of the internal controls and accounting

systems and procedures only to the extent considered necessary for the effective performance of the audit. Audit findings and observations therefore should not be regarded as representing a comprehensive statement of all the weaknesses which exist, or all improvements which could be made to the systems and procedures operated.


7

Index of recommendations Issues raised

No. Description Priority Page 1 Expenditure Issues 2 6 2 Incorrect Hourly Rates Paid 2 7 3 Absence of Formal Lease Agreements 2 8 4 Prompt Payment Performance 3 9

1. Expenditure Issues Observations Arising from our expenditure testing we noted the following points: • A contract for the maintenance of fire alarms continued after its expiry date. We were advised that the

company were the only providers for maintenance as they had installed the fire alarms. No Single Tender Action (STA) was put in place for the extended maintenance work.

• Our review of creditors and accruals also noted that in contravention of the Council’s procurement policy there were a number of purchase orders only raised on or after the goods or services were provided to the Council. (Purchase orders should be raised in advance of goods or services being procured)

• Our review of Agency Costs noted that no formal procurement process had taken place to confirm which

recruitment agencies were approved for use by the Council during 15-16. We understand that this process has now been completed and is effective from 1st September 2016. However, in the absence of formal procedures, the potential of value for money not being achieved or a challenge from recruitment agencies not used still existed throughout the 2015-16 financial year under audit.

• In relation to purchases under £1,500, the Council’s own guidance on the provision of supplies and services

(other than by annual tender) states that ‘Reasonable effort must be made to achieve value for money (and) documentary evidence should be retained to show that Value for Money has been obtained (carry out a price check with at least two suppliers to ensure value for money has been achieved. Price checks should be documented and retained on file for audit purposes.)’

From our sampling testing we note two incidences of this guidance not being adhered to: • A quote for £500 in respect of cleaning a kitchen canopy was obtained from only one company. While a

memo was attached explaining that only one company was found, this explanation was accepted without any evidence of challenge or checking.

• In another instance, an assessment centre held at a local hotel and costing £416 was arranged with no evidence of quotes having been obtained or price checks carried out.

Implication There is a risk that the Council’s procurement and purchasing procedures are not being fully followed, with potential for additional costs to the Council. Priority Rating 2 Recommendation

1) On occasions when there is only a single supplier of a service, then a STA must be put in place and approved in accordance with Council’s policy.

2) Purchase orders must always be raised and approved prior to goods or services being ordered. 3) Council should ensure proper procurement processes are followed for all goods and services purchased. 4) Evidence of quotes/price checks, including those below £1,500 should be retained for audit trial

purposes and to demonstrate value for money as required by Council procedures. Management Response Accepted.

- Training has been rolled out to all service areas and refresher training will continue to be delivered at regular intervals to reinforce the procurement procedures. The use of Single Tender Actions is discussed at Senior Leadership Team meetings on a regular basis.


8

- As noted above, a procurement process has now been completed for recruitment agencies and has been effective from 1st September 2016.

- Council is also striving towards the introduction of electronic ordering and procurement which will further tighten controls in this area.

Target for Implementation Ongoing

2. Incorrect Hourly Pay Rates Paid

Observations As part of our testing of payroll it was noted that former Strabane District Council (SDC) staff have an adjustment made to their payslips each month. These staff were TUPE’d across on 01.04.15 Further investigations noted that Strabane District Council staff were paid on an hourly rate based on 52 weeks per year rather than 52.143 weeks per year as required under the National Joint Council (NJC) local government pay scales. This difference in hourly rate results in former SDC staff being in receipt of a higher hourly rate than the NJC pay scales intended. This only came to light when the Councils and payroll functions merged. We understand that the Council have decided to continue to pay the former Strabane District Council staff the hourly difference in the interim. Implication Some staff are being paid the incorrect amount or more than other Council staff on the same payscale. Priority Rating 2 Recommendation We recommend that a resolution is found to ensure that all staff are paid the agreed hourly rates as per NJC local government pay scales across the Council. Management Response Accepted. When the Councils merged it came to light that the hourly rate for employees previously employed by Strabane District Council had been mistakenly calculated based on 52 weeks per year rather than 52.143 weeks . This mainly affects a small number of part time employees as well as those who receive overtime payments. We are currently liaising with our legal representatives in relation to this and hope to have a resolution shortly. Target for Implementation March 2017


9

3. Absence of Formal Lease Agreements Observations Our review of leasing agreements noted that the Council is currently leasing and receiving income for land/property from four organisations as well as leasing a property itself where the original lease agreements have expired. Implication There is a risk that the Council may not be achieving value for money if the current rental values are more than the current rent being received on their own leased properties. As regards lessee agreements, use of premises issues (should they arise) may be more difficult to resolve without a formal lease. Priority Rating 2 Recommendation We recommend that the Council puts in place as soon as practicable, formal lease agreements for each property it leases to other organisations and for those that they lease themselves. Management Response The Legal Section are currently in the process of recording all leases; which will be reconciled to the Finance records at year end. Formal agreements will be put in place for those leases identified as part of this process which currently do not have leasing agreements. In addition to this, LPS will be engaged to carry out a valuation exercise to ensure that all rental values are accurate. Target for Implementation Ongoing

4. Prompt Payment Performance

Observations During 2015-16 the Council processed 76% of all its invoices within 30 calendar days. Further 35% of all invoices were paid within 10 working days. In line with the Northern Ireland Executive’s policy on prompt payment, Public Sector bodies should aim to pay all their invoices within 30 calendar days and at least 90% of valid invoices within 10 working days. Although this doesn’t strictly apply to Councils, we would encourage them to apply this good practice. Implication The Council is not achieving good practice prompt payment targets. Priority Rating 3 Recommendation We would encourage the Council to improve its payment of invoices record, particularly in relation to the percentage paid within 10 working days. We understand that the Council has plans to introduce a fully automated, electronic purchase ordering system. This should assist the Council in tracking invoices which may help in achieving improved prompt payment rates and also help address the issue of purchase orders not always being raised ( see point 1 above) Management Response Accepted. Council plans to introduce a fully automated, electronic purchase ordering system which should assist in tracking invoices and help to improve prompt payment rates and compliance with purchasing procedures. Target for Implementation Ongoing

2.15 In accordance with International Standards on Auditing we have to consider significant weaknesses identified

in our prior year audit. We have therefore reviewed management’s implementation of Priority 1 recommendations made in our prior year Report to those charged with Governance. Our findings are set out in Annex C – Implementation of Prior Year Recommendations. The Audit Committee should continue to track progress on all recommendations, including Priority 2 and Priority 3 points.

Section 3 Identified Misstatements

10

3.1 This section contains details of adjustments made to the financial statements during the course of the audit, as well as unadjusted misstatements which are not considered material in the context of the financial statements as a whole.

3.2 We do not consider that the adjusted or unadjusted misstatements indicate a significant weakness in

accounting or control which needs to be reflected in the Governance Statement.

Significant adjustments 3 made to the financial statements 3.3 As a result of our audit, adjustments were made to the financial statements presented for audit. The

adjustments are shown below. The presentation of this information enables those charged with governance to assess the extent to which the financial statements presented for audit have been subject to change as a result of the audit process.

3.4 The audit adjustments made to the initial financial statements were presentational errors and no effect on

either the general fund result for the year or the value of net assets in the balance sheet. These include: • £2,009k undercharge to CIES, as depreciation was not applied to the revaluation uplift of specialised

buildings in year. This depreciation was then reversed via Note 3. • £565k in respect of the Foyle Arena valuation was moved from infrastructure assets to land, as

infrastructure assets are carried at historic cost 3.5 We also made a number of other suggestions to improve narrative disclosures and to ensure

completeness of the disclosures required under the Code of Practice on Local Authority Accounting.

Unadjusted misstatements or uncertainties arising from the audit 3.6 We are obliged to bring to your attention the misstatements found during the course of the audit that have

not been corrected, unless they are 'clearly trivial', which we have identified as below £15,000.

Description of adjustments

Account area CIES BS Debit Credit Debit Credit £’000 £’000 £’000 £’000

Prior year addition to

Work in Progress not

included as Non Current

Assets

PPE Opening Balance

PPE Additions

117

117

Surplus Assets not

revalued in 15/16

Surplus Assets (PPE)

Revaluation Reserve

218

218

Inclusion of Performance

Audit fees as an accrual.

Accruals

CIES

25

25

Overall Total 0 25 360 335

Net effect 25 25

Note: Further demolition costs of £826,499 in respect of the old building on the Foyle Arena site were accounted for as an impairment and revaluation reserve adjustment. Arguably this should have been treated as a disposal. However as there is no affect on either the net assets or results for the year we have not sought an adjustment for this.

3 Above the clearly trivial threshold of £15,000 defined in the Audit Strategy.

Section 4 Other Matters of Governance Interest

11

4.1 International Standard on Auditing 260 requires us to communicate with those charged with governance any other audit matters of governance interest. These include matters which have come to our attention which may present future risks, enhance overall governance or where those charged with governance might wish to seek assurance on controls and processes.

Fraud 4.2 We are required by Auditing Standards to report to you if we identify a fraud or obtain information that

indicates that a fraud may exist. We found no such instances during our testing. 4.3 In addition, we are not aware of material weaknesses in the design or implementation of internal controls to

prevent and detect fraud. 4.4 In the course of our audit we have not identified any suspected or non-compliance with the laws and

regulations.

Going concern 4.5 In the course of our audit, we have not identified any material uncertainties relating to events and conditions

that may cast doubt on the Council’s ability to continue as a going concern. However please see our comment on going concern of CODA Ltd in paragraph 10 of the Executive Summary above.

Management of personal data 4.6 The Derry City and Strabane District Council is required to comply with the Data Protection Act 1998 in the

handling and storage of personal data and those charged with governance should ensure they have made sufficient enquiries of management to form a view on whether there were any significant specific data incidents which should be disclosed in the Governance Statement. We are unaware of any data handling incidents during the year. Confirmation of this is sought within the letter of representation (Annex A).

Statement on personal data 4.7 During the course of our audit we have access to personal data to support our audit testing. We have

established processes to hold this data securely within encrypted files and to destroy it where relevant at the conclusion of our audit. We can confirm that we have discharged those responsibilities communicated to you in accordance with the requirements of the Data Protection Act 1998.

Disagreements with management 4.8 There are no audit disagreements with management, about matters that individually or in aggregate could

be significant to the financial statements to report.

Co-operation with other auditors

Internal Audit 4.9 We continue to liaise closely with Internal Audit and seek to take assurance from their work where their

objectives cover areas of joint interest. Whilst we have not placed direct reliance on their work during the audit we have used their findings to inform and direct our audit approach and inform our review of the Governance Statement for completeness. We have followed up with them any issues emerging that were of relevance or interest to our audit of the annual accounts.

Consolidated entities’ auditors 4.10 We liaised with the group auditors of City of Derry Airport (Operations) Ltd (CODA) to enable the Local Government Auditor to express an opinion on the financial statements of Derry City and Strabane District Council and its Group as at 31 March 2016 and its income and expenditure for the year then ended.


12

Deficiencies in internal control 4.11 No deficiencies in internal control were brought to the attention of the audit team that have not been

disclosed in the Annual Governance Statement or included in this report or in the minor issues sent to Director of Support Services. We note the ongoing investigation in respect of the procurement of security services is outlined within the Annual Governance Statement.

Independence, integrity & objectivity of auditors 4.12 The NIAO's policy to ensure independence, integrity and objectivity of our auditors was set out in our Audit

Strategy. Overall, the threat to the audit arising from issues affecting our independence, integrity and objectivity is low, and the safeguards in place ensure that the likelihood of any impact is low.

4.13 We have complied with APB Ethical Standards and, in our professional judgement, we are independent and

our objectivity is not compromised. There are no relationships between NIAO, Derry City and Strabane District Council that we consider to bear on our objectivity and independence.

Reliance on other experts

4.14 We have relied upon the work and expertise of • Land and Property Services in respect of land and property valuation • An Actuary for the valuation of the pension scheme liabilities • A civil engineering firm for the costs included in the landfill site provision • A firm of Treasury Advisors re the discount rate applied to the landfill site provision

Proper Arrangements 4.15 Under the Local Government (Northern Ireland) Order 2005, the Local Government Auditor should be

satisfied that a Council has in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources. There are no significant issues to report in relation to proper arrangements and no points have been raised in Section 2.

Other matters of interest 4.16 We note that the Council holds a balance of £282,745 in respect of the North West Air Access Consortium.

Given that other third parties have contributed to this fund in the past, the Council should consider whether these parties should periodically be informed as to how these monies have been used.

4.17 Part 12 of the Local Government Act (Northern Ireland) 2014 covers ‘Performance Improvement’. The Act

requires an improvement audit and an improvement assessment. The outcome from this work will be reported separately to those charged with governance as set out in the timetable in the ‘Improvement Audit and Assessment Strategy 2016-17’ issued in June 2016.

Complaints procedure 4.18 NIAO seeks to ensure that, when carrying out its audit work, it complies with the principles developed by the

Public Audit Forum in its paper “What Public Sector Bodies can expect from their Auditors”. NIAO also wishes to gauge public sector bodies’ perceptions of its audit processes in order to promote

continuous improvement. In particular, it undertakes to act quickly on any complaint and ensure that the underlying causes of problems are addressed to prevent them recurring. In the first instance, complaints can be addressed to the member of the Directorate responsible for the audit within which the concern has been raised.


13

Failing resolution of the problem to the satisfaction of the complainant, the Chief Executive of the audited body can then write directly to the Comptroller and Auditor General. He will ensure that a further review of the case will be undertaken.

Annex A – Letter of Representation

14

[Client Letterhead]

The Local Government Auditor Northern Ireland Audit Office 106 University Street BELFAST BT 7 1EU

LETTER OF REPRESENTATION: Derry City and Strabane District Council 2015-16 As Chief Financial Officer of Derry City and Strabane District Council, I acknowledge my responsibility for discharging the functions of Derry City and Strabane District Council which include preparing accounts that give a true and fair view of the state of affairs, income and expenditure and cash flows of the Derry City and Strabane District Council for the year ended 31 March 2016.

In preparing the accounts, I was required to:

• observe the accounts direction issued by the Department for Communities formerly Department of the

Environment, including the relevant accounting and disclosure requirements and apply appropriate accounting policies on a consistent basis;

• make judgements and estimates on a reasonable basis; and

• state whether applicable accounting standards have been followed and disclosed and explain any material

departures in the accounts; and prepare the accounts on a going concern basis on the presumption that the Derry City and Strabane District Council will continue in operation.

I confirm that for the financial year ended 31 March 2016: • having considered and enquired as to the Derry City and Strabane District Council compliance with law and

regulations, I am not aware of any actual or potential non-compliance that could have a material effect on the ability of the Derry City and Strabane District Council to conduct its business or on the results and financial position disclosed in the accounts;

• all accounting records have been provided to you for the purpose of your audit and all transactions undertaken

by the Derry City and Strabane District Council have been properly reflected and recorded in the accounting records. All other records and related information, including minutes of all management meetings which you have requested have been supplied to you; and

• all Related Parties and Related Party Transactions involving Councillors and senior staff of the Derry City and

Strabane District Council have been properly disclosed.

All material accounting policies as adopted are detailed in note 1 to the accounts.

INTERNAL CONTROL I acknowledge as Chief Financial Officer my responsibility for the design and implementation of internal controls to prevent and detect error and I have disclosed to you the results of my assessment of the risk that the financial statements could be materially misstated.


15

I confirm that I have reviewed the effectiveness of the system of internal control and that the disclosures I have made are in accordance with Department for Communities (formerly Department of Environment) guidance on the Governance Statement.

FRAUD I acknowledge as Chief Financial Officer my responsibility for the design and implementation of internal controls to prevent and detect fraud and I have disclosed to you the results of my assessment of the risk that the financial statements could be materially misstated as a result of fraud. Other than the cases already communicated to you, I am not aware of any fraud or suspected fraud affecting the Derry City and Strabane District Council and no allegations of fraud or suspected fraud affecting the financial statements has been communicated to me by employees, former employees, analysts, regulators or others.

ASSETS

General All assets included in the Balance Sheet were in existence at the reporting period date and owned by the Derry City and Strabane District Council and free from any lien, encumbrance or charge, except as disclosed in the accounts. The Balance Sheet includes all long term assets owned by the Derry City and Strabane District Council. Assets transferred from legacy Councils and central government have been reviewed and aligned to the Council’s accounting policies. An impairment review of the assets has been conducted and the accounts adjusted where appropriate. Long Term Assets All assets over £5,000 are capitalised. Land and Property assets valuations are carried out every five years by an independent valuer and are revalued annually using indices provided by Land and Property Services. Depreciation is calculated to reduce the net book amount of each asset to its estimated residual value by the end of its estimated useful life in the Derry City and Strabane District Council operations.

Current Assets On realisation in the ordinary course of the Derry City and Strabane District Council operations the other current assets in the Balance Sheet are expected to produce at least the amounts at which they are stated. Adequate provision has been made against all amounts owing to Derry City and Strabane District Council which are known, or may be expected, to be irrecoverable.

LIABILITIES

General All liabilities have been recorded in the Balance Sheet. There were no significant losses in the year and no provisions for losses were required at the year end. Liabilities transferred from legacy Councils and central government have been reviewed and the amounts agreed with the relevant parties.

Provisions Provision is made in the financial statements for: Single Status - There still remains a number of claims/appeals outstanding which are expected to be resolved during 2016-17. A provision of £758,000 is available to meet the expected cost of these claims.


16

Based on legal advice no single status payments will be made to former employees. Landfill Gas Asset - The estimated income of £884,906 is based on recent gas arising projections by the energy contractor. We are content with the estimation process and that the income share to council is in line with the gas agreement. Landfill provision £3,265,393 - The landfill provision is based on:-

• Revised current capping costs of £7,332,000. • The landfill aftercare costs are based on current prices and have assumed that an aftercare period of 53 years

will be required. No cost provision is required for future gas flaring, post gas generation, as gas levels are expected to be low once contractor goes off site. NIEA have confirmed they are content with the provision.

Claims Management Provision – I am satisfied with the claims management provision of £1,052,172.

Contingent Liabilities There are a number of legal claims or potential claims against the Derry City and Strabane District Council the outcome of which cannot at present be estimated with certainty. Full provision is made in the financial statements for all liabilities which are expected to materialise.

I am not aware of any pending litigation which may result in significant loss to the Derry City and Strabane District Council, and I am not aware of any action which is or may be brought against the Derry City and Strabane District Council under the Insolvency (Northern Ireland) Order 1989 and the Insolvency (Northern Ireland) Order 2005.

OTHER LIABILITIES

The net pension liability at the year end is £24,884,939.

Having made appropriate enquiries, I am satisfied with the appropriateness of the actuarial assumptions underlying the valuation of the Council’s share of the valuation of the pension scheme liabilities.

Furthermore, I confirm that:

• All significant retirement benefits, including any arrangements that are implicit in the employers’ actions, have been identified and properly accounted for; and

• All settlements and curtailments have been identified and properly accounted for.

OTHER DISCLOSURES

Results Except as disclosed in the accounts, the results for the year were not materially affected by transactions of a sort not usually undertaken by the Derry City and Strabane District Council, or circumstances of an exceptional or non-recurring nature.

Unadjusted errors The following unadjusted errors have been brought to my attention:

• Further demolition costs of £826,499 in respect of the old building on the Foyle Arena site were accounted for as an impairment and revaluation reserve adjustment. Arguably this should have been treated as a disposal. However as there is no affect on either the net assets or results for the year we have not sought an adjustment for this.

• Assets transferred to surplus assets were not revalued in 2015-16 resulting in an estimated understatement of £218,000; and


17

• Prior year addition to work in progress of £117,438 was not included as part of our non-current assets. • Inclusion of the 2016-17 Performance Audit fees worth £25,000 as an accrual in 2015-16.

I consider the effect of these unadjusted errors to be immaterial, both individually and in aggregate, to the financial statements taken as a whole.

Events after the Balance Sheet date Except as disclosed in the accounts, there have been no material changes since the Balance Sheet date affecting liabilities and commitments, and no events or transactions have occurred in either the Council or the group which, though properly excluded from the accounts, are of such importance that they should have been brought to notice.

Personal Data Related Incidents

I can confirm there were no data related incidents in the financial year and to date.

Other Representations While the Derry City and Strabane Council have indicated that the amount of subvention payable to City of Derry Airport (CODA) will be limited to £2,145,000 I am content that the Council will continue to fund the airport for the foreseeable future. Useable and unusable reserves transferred from legacy Councils have been reviewed and the amounts agreed with the relevant records. John Kelpie Chief Financial Officer Derry City and Strabane District Council 14 September 2016

Annex B – Audit Report

18

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DERRY CITY AND STRABANE DISTRICT COUNCIL I have audited the financial statements of Derry City and Strabane District Council and its group for the year ended 31 March 2016 under the Local Government (Northern Ireland) Order 2005. The financial statements comprise the Movement in Reserves Statement, Comprehensive Income and Expenditure Statement, Balance Sheet, Cash Flow Statement, together with the Group Accounts and the related notes. The financial statements have been prepared under the accounting policies set out within them. I have also audited the information in the Remuneration Report that is described in that report as having been audited. This report is made solely to the Members of Derry City and Strabane District Council in accordance with the Local Government (Northern Ireland) Order 2005 and for no other purpose, as specified in the Statement of Responsibilities. Respective responsibilities of the Chief Financial Officer and the independent auditor As explained more fully in the Statement of Council’s and Chief Financial Officer’s Responsibilities, the Chief Financial Officer is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view of the income and expenditure and cash flows for the financial year and the financial position as at the end of the financial year. My responsibility is to audit the financial statements in accordance with the Local Government (Northern Ireland) Order 2005 and the Local Government Code of Audit Practice. I conducted my audit in accordance with International Standards on Auditing (UK and Ireland). Those standards require me and my staff to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Derry City and Strabane District Council’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Derry City and Strabane District Council; and the overall presentation of the financial statements. In addition I read all the financial and non-financial information in the Statement of Accounts to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by me in the course of performing the audit. If I become aware of any apparent material misstatements or inconsistencies I consider the implications for my report. Opinion on financial statements In my opinion:

• the financial statements give a true and fair view, in accordance with relevant legal and statutory requirements and the Code of Practice on Local Authority Accounting in the United Kingdom 2015-16, of the financial position of Derry City and Strabane District Council and its group as at 31 March 2016 and its income and expenditure for the year then ended; and

• the financial statements have been properly prepared in accordance with the Local Government (Accounts and Audit) Regulations (Northern Ireland) 2015 and the Department for Communities (formerly Department of the Environment) directions issued thereunder.

Opinion on other matters In my opinion:

• the part of the Remuneration Report to be audited has been properly prepared in accordance with the Department for Communities directions made under the Local Government (Accounts and Audit) Regulations (Northern Ireland) 2015; and

• the information given in the Narrative Report for the financial year ended 31 March 2016 is consistent with

Annex B – Audit Report

19

the financial statements.

Matters on which I report by exception I have nothing to report in respect of the following matters which I report to you if:

• in my opinion:

o the Annual Governance Statement:

does not reflect compliance with the Code of Practice on Local Authority Accounting in the United Kingdom 2015-16 ;

does not comply with proper practices specified by the Department for Communities;

is misleading or inconsistent with other information I am aware of from my audit; or

o adequate accounting records have not been kept; or

o the statement of accounts and the part of the remuneration Report to be audited are not in agreement with the accounting records; or

o I have not received all of the information and explanations I require for my audit, or

• I issue a report in the public interest under Article 9 of the Local Government (Northern Ireland) Order 2005; or

• I designate under Article 12 of the Local Government (Northern Ireland) Order 2005 any recommendation made to the Council; or

• I exercise the other special powers of the auditor under Article 19 to 21 of the Local Government (Northern Ireland) Order 2005.

Certificate I certify that I have completed the audit of accounts of Derry City and Strabane District Council in accordance with the requirements of the Local Government (Northern Ireland) Order 2005 and the Local Government Code of Audit Practice. Louise Mason Local Government Auditor Northern Ireland Audit Office 106 University Street Belfast BT7 1EU 23 September 2016

Annex C - Implementation of Prior Year Recommendations

20

We reviewed management’s implementation of Priority 1 recommendations made in our prior year Report to those Charged with Governance. We have summarised the response and provided our evaluation, based on the audit work we have undertaken.

No. Recommendation Management Implementation 1. In instances were a Single Tender Action is

deemed appropriate, the Council should ensure that the relevant documentation is completed and that the appropriate Council approvals are in place. The Council should implement all recommendations arising from its review of the procurement of security services as soon as possible. The Council follows procurement guidance and ensures that new lists of contractors are tendered for on a timely basis.

At this point in time all the recommendations arising from the internal investigation, detailed audit systems report and a subsequent external review into procurement have either been fully or partially implemented with significant improvements in the Council’s procurement procedures and processes. See also point 1 of this year’s audit findings on page 7 above.

The Audit Committee should ensure that it is content that other recommendations made in our prior year Report to those Charged with Governance have been actioned by management. The Audit Committee should also ensure that adequate arrangements are in place to track all recommendations.

n i a o - derry and strabanemeetings.derrycityandstrabanedistrict.com/documents/s14690/2 appendix...

Documents